Naira rallies across markets onoil refining, forex injections

• Exchange rate gap narrows

The naira last week experienced significant appreciation across markets. The rebound was driven by liquidity injections from the Central Bank of Nigeria (CBN) and fallout of improved domestic oil refining.

The domestic currency had a positive trading performance during the week as the naira strengthened by 7.9 per cent and 0.7 per cent against the dollar at the parallel and official windows to exchange at N1,330.00 per dollar  and N1,346.32 per dollar  respectively.

As such, the spread between parallel market and official rates declined from N77.22 to N16.32 last week. 

Managing Director, Afrinvest West Africa Limited, Ike Chioke, said naira will trade in similar band this week, as the currency fundamentals remain bullish in the short-medium term, underpinned by CBN’s continued liquidity boost and improved activities with strategic domestic oil refining.

The benchmark Brent Crude Oil price advanced by 5.7 per cent week-on-week to settle at $71.58/bbl, driven by renewed tensions between Washington and Tehran.

The tensions in the Middle East arose due to threats of possible military actions by President Trump if Iran fails to agree to a nuclear deal. These concerns lifted oil prices as market feared a potential supply disruption via the Strait of Hormuz (a key route for global oil flows).

On the domestic scene, CBN foreign reserves advanced 1.5 per cent week-on-week to settle at $48.5 billion on February 17 data from the CBN showed.

President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said the  naira has remained stable across market for several months, ending years of volatility in the market.

Additionally, Managing Director of Financial Derivatives Company (FDC), Bismarck Rewane, estimated the fair value of the naira at about N1,257 to the US dollar.

Rewane posits that the local currency is undervalued by approximately 11 per cent when assessed using the purchasing power parity (PPP) model.

Rewane made the submission during his keynote address at the 2026 Economic Outlook organised by the Association of Corporate Treasurers of Nigeria (ACTN), where he anchored the session and offered a detailed analysis of the structural and cyclical factors influencing Nigeria’s exchange-rate movements.

He noted that currencies typically converge towards their PPP-implied values over a five-year horizon.

According to him, the appropriate exchange rate based on current PPP estimates stands at N1,256.79 to the dollar, reinforcing the view that the naira remains below its fair valuation level.

The founder/Chief Executive Officer of the Centre for the Promotion of Public Enterprise (CPPE), Dr Muda Yusuf, hinted at a positive outlook for Nigeria’s external reserves as he does not see anything derailing the forex and fiscal reforms that have brought about stability and improvement in external reserves.

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Yusuf said, ‘’Well, the outlook for me is positive because I don’t see anything derailing these reforms [forex reform, fuel subsidy etc]. It is these reforms that have brought about stability. And it’s this stability that has inspired confidence. It is the confidence that has allowed the improvement in the reserves. The reserves are not so much coming from oil, though. I don’t have the full breakdown. But my sense is that the reserves are coming from largely outside the oil – FDI, portfolio, diaspora flows, non-oil exports etc. Quite a lot is happening outside traditional sources of forex.

 ‘’So, those things are anchored on reforms. For as long as that is happening and I don’t see that changing, even with the so-called election year or whatever, I don’t see anything changing that in any drastic way.’’

Other analysts said the growth in the external reserves can only be sustained in 2026 if the Central Bank of Nigeria (CBN) avoids excessive FX intervention, fiscal authorities are restrained from spending pressures and the FX reforms are not reversed.

They said, ‘’Historically, election cycles in Nigeria tend to introduce policy uncertainty, FX demand pressure, and capital flow reversals. So, while reserves can be sustained in the short term, maintaining this momentum throughout an election year will depend on discipline.

The CBN had, in its 2026 Macroeconomic Outlook for Nigeria, projected that Nigeria’s external reserve would rise to $51.04 billion in 2026, supported by stronger oil earnings, foreign exchange (FX) market reforms, and improved external inflows.

The apex bank said the outlook reflects higher oil revenues, increased bond issuance, sustained diaspora remittances, FX market reforms, and expanded domestic refining capacity.

The CBN stated, “The external reserves is projected at US$51.04 billion in 2026, compared with US$45.01 billion in 2025. The external reserves is expected to be boosted by reduced pressure in the FX market based on the anticipated rise in oil earnings, sovereign bond issuance, and diaspora remittance inflow.’